No Quanta of Solace for Farmer Bowman: Unlicensed Planting of Patented Seed Infringing Use, Not Patent Exhaustion*
|Written by Eric W. Guttag
Eric W. Guttag IP Law Office
Posted: May 20, 2013 @ 11:21 am
To understand the ruling in Bowman, you must first understand Monsanto’s patented Roundup Ready® soybean technology, its Technology Agreement with purchaser’s of those soybeans delineating the licensed use thereof, as well as the fairly complex fact situation of Farmer Bowman’s use (or more appropriately wily misuse) of the “commodity” soybeans he purchased from a local grain elevator and subsequently planted for the express purpose of harvesting the resulting seed. Monsanto’s patented technology involved genetically modified soybeans that exhibited resistance to N-phosphonomethylglycine-based herbicides (commonly known as “glyphosate” or “glyphos”), such as Monsanto’s Roundup® herbicide product. These genetically modified soybeans were known as Roundup Ready® soybeans because of their resistance to such herbicides.
Monsanto’s licensed producers sold Roundup Ready® seeds to growers for planting. All sales to growers, whether from Monsanto or its licensed producers, were subject to a standard form limited use license, known as the “Technology Agreement.” Under the Technology Agreement, the licensed grower agreed to: (1) use the seed containing Monsanto’s patented Roundup Ready® seeds for planting a commercial crop only in a single season; (2) not supply any of these purchased seeds to any one else for planting; (3) not save any crop produced from this seed for replanting, or supply saved seed to anyone for replanting; and (4) not use these purchased seeds or provide them to anyone for crop breeding, research, generation of herbicide registration data, or seed production. In other words, Monsanto’s Technology Agreement restricted the grower’s use of the licensed Roundup Ready® seed to a single commercial crop season “because the patented Roundup Ready® genetic trait carries forward into each successive seed generation,” i.e., the replicated seeds each contained the Roundup Ready® genetic trait.
Not surprisingly, the Technology Agreement also authorized growers of these replicated seeds to sell the harvested replicated seed to local grain elevators as a commodity, without requiring those growers to place any restrictions on the grain elevators’ subsequent sales of those seeds. As described in the Federal Circuit’s decision in Bowman, “commodity seeds” are a mixture of undifferentiated seeds harvested from various sources, including from farms that grow Roundup Ready® soybeans, as well as those that do not. Even so, nearly ninety-four percent of Indiana’s (the state where Bowman purchased these “commodity seeds”) acres of soybeans planted in 2007 were planted using herbicide resistant varieties. In fact, before the Federal Circuit, Monsanto had “twice eschewed any reading of the Technology Agreement to prohibit unrestricted seed sales to grain elevators as a commodity.” Accordingly, based “on Monsanto’s statements, the only permissible reading of the Technology Agreement” as stated in the Federal Circuit decision was that “it authorizes growers to sell seed to grain elevators as a commodity.”
In 2002, Pioneer Hi-Bred (“Pioneer”), a Monsanto licensed seed producer, sold Roundup Ready® soybean seeds to Farmer Bowman, a grower in Knox County, Indiana. In making that sale, Pioneer required Farmer Bowman to execute the “Pioneer Hi-Bred Technology Agreement,” which contained same language and restrictions as Monsanto’s Technology Agreements described above. Farmer Bowman purchased from Pioneer and planted Roundup Ready® seeds each year, beginning as early as 1999. Farmer Bowman planted these purchased Roundup Ready® seeds as his first crop in each growing season during the years 1999 through 2007. Consistent with the terms of the Monsanto/Pioneer Technology Agreement, Farmer Bowman did not save these seeds from his first crop during any of those years. So far, Farmer Bowman was in compliance with his obligations under the Technology Agreement.
But in parallel to these lawful purchases of Roundup Ready® seeds from Pioneer (and also starting in 1999), Farmer Bowman purchased “commodity seed” from a local grain elevator, Huey Soil Service, for a late-season planting, or “second-crop.” Because Farmer Bowman considered this second crop to be a riskier planting, he purchased the “commodity seed” to avoid paying the significantly higher price for Roundup Ready® seed sold by Pioneer. That same year (1999), Bowman applied glyphosate-based herbicides to the fields in which he had planted these “commodity seeds” to control weeds and to determine whether the plants would exhibit the desired glyphosate resistance. He confirmed that many of these second crop plants were, indeed, resistant. In each subsequent year, from 2000 through 2007, Farmer Bowman treated this second crop with glyphosate-based herbicide. Unlike his first crop harvested from the Pioneer-purchased Roundup Ready® seeds, Bowman saved the seed harvested from his second crop planted with the “commodity seeds” for replanting additional second crops in later years. He also supplemented his second crop planting supply with periodic additional purchases of “commodity seed” from this local grain elevator.
Naively, Farmer Bowman did not attempt to hide his activities. In fact, Farmer Bowman “candidly explained his practices with respect to his second crop soybeans in various correspondences with Monsanto’s representatives.” On October 12, 2007, Monsanto sued Farmer Bowman in the Southern District of Indiana, alleging infringement of Monsanto’s patented Roundup Ready® soybeans based on Farmer Bowman’s second crop practice. On September 30, 2009, the District Court for the Southern District of Indiana granted summary judgment of infringement in favor of Monsanto in the amount of $84,456.20.
Relying upon the Supreme Court’s 2008 decision in Quanta, Farmer Bowman argued on appeal to the Federal Circuit that Monsanto’s patent rights in its Roundup Ready® soybeans were “exhausted” with respect to all Roundup Ready® soybean seeds that are present in grain elevators as undifferentiated commodity. Monsanto countered that the sale by growers of the second generation of Roundup Ready® soybean seeds to these grain elevators as “commodity seeds” wasn’t subject to the doctrine of patent exhaustion because of the express condition in the Technology Agreement that the progeny of the licensed seed was never to be sold for planting. Monsanto additionally argued that, even if the commodity seeds were subject to the doctrine of patent exhaustion, Farmer Bowman was infringing by planting those “commodity seeds” because Monsanto’s patent rights in the Roundup Ready® soybeans were independently applicable to each generation of soybeans that contained the patented genetic trait.
In affirming the Southern District of Indiana’s ruling that the doctrine patent exhaustion didn’t apply to Farmer Bowman’s second crop plantings with “commodity seeds,” the Federal Circuit panel noted the earlier McFarling and Scruggs cases which also dealt with the unauthorized planting of second generation seeds, and that the doctrine of patent exhaustion didn’t bar the holding of infringement in either of those cases. Like those two earlier cases, the Federal Circuit found that patent exhaustion didn’t bar an infringement action against Farmer Brown for the unauthorized second planting of the “commodity seeds”:
“Even if Monsanto’s patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence because once a grower, like Bowman, plants the commodity seeds containing Monsanto’s Roundup Ready® technology and the next generation of seed develops, the grower has created a newly infringing article.”
In support of their ruling, the Federal Circuit specifically quoted the following language from Scruggs:
“The fact that a patented technology can replicate itself does not give a purchaser the right to use replicated copies of the technology. Applying the first sale doctrine [i.e., the doctrine of patent exhaustion] to subsequent generations of self-replicating technology would eviscerate the rights of the patent holder.”
As the Federal Circuit panel also correctly observed, Farmer Bowman could still use the “commodity seeds” in various other ways, including as feed. But that didn’t give Farmer Bowman the lawful right to “replicate” Monsanto’s patented Roundup Ready® soybeans by planting their seeds “to create newly infringing genetic exhaustion of patent rights material, seeds, and plants.” (Farmer Bowman also made a belated and unsuccessful argument that Monsanto failed to provide proper notice/marking of its patent rights under 35 U.S.C. § 287(a) and thus couldn’t recover damages from Farmer Bowman.)
When the Supreme Court granted Farmer Bowman’s petition for certiorari, all of us in the patent law arena, and especially Monsanto, held our collective breath that Farmer Bowman might yet get solace from the patent exhaustion ruling in Quanta. But after what transpired in oral argument before the Supreme Court, it was fairly clear that Farmer Bowman, as well as his counsel (Mark Walters), were facing nine very skeptical Justices. Almost immediately after Walters’ opening remarks, Chief Justice Roberts asked the “$64,000” question: “Why in the world would anybody spend any money to try to improve the seed if as soon as they sold the first one anybody could grow more and have as many of those seeds as they want?”
From there, the oral argument went pretty much downhill for Farmer Bowman, as well as Walters. (Walters also a faced a very successful and knowledgeable advocate on Monsanto’s side, Seth Waxman, who had persuasively argued for the patentee in Microsoft Corp. v. i4i.) Even Justice Scalia understood the problem with Farmer Bowman’s argument for patent exhaustion as he tore into Walters’ response to Chief Justice’s astute question:
JUSTICE SCALIA: I thought that their claim is he only violates the patent if he tries to grow additional seeds from his first crop. Right? Isn’t that the only claim here?
MR. WALTERS: The reach of Monsanto’s theory is that once that seed is sold, even though title has passed to the farmer, and the farmer assumes all risks associated with farming, that they can still control the ownership of that seed, control how that seed is used.
JUSTICE SCALIA: No, not that seed. It’s different seed. That seed is done. It’s been planted in the ground and has grown other seed. It’s the other seed we are talking about. It’s not the very seed that was sold. Right?
At that point in the oral argument, Farmer Bowman’s position on applying patent exhaustion to his second planting of “commodity seeds” was already in serious trouble. Further comments/questions by Justices Kennedy, Breyer, Ginsburg, and later, Sotomayor, didn’t suggest a sympathetic ear for Farmer Bowman’s position.
But what may have been the “clincher” at oral argument was this comment by Justice Kagan (the author of the unanimous Supreme Court decision in favor of Monsanto) which again returned to the Chief Justice’s “$64,000” question:
JUSTICE KAGAN: Mr. Walters, can you go back to the Chief Justice’s opening question, because the Chief Justice asked you what incentive Monsanto would have to produce this kind of product if you were right. And you said, well, they can protect themselves by contract. Actually, it seems to me that that answer is purely insufficient in this kind of a case, because all that has to happen is that one seed escapes the web of these contracts, and that seed, because it can self-replicate in the way that it can, essentially makes all the contracts worthless. So again, we are back to the Chief Justice’s problem, that Monsanto would have no incentive to create a product like this one.
For all his efforts to try to put the Chief Justice’s opening question to bed, Walters simply couldn’t make it happen. In fact, after Melissa Sherry for the U.S. government argued (essentially in favor of Monsanto’s position), Seth Waxman deftly (and carefully) avoided during his portion of the oral argument allowing Walters any chance to get “back in the Quanta game” during the rebuttal argument.
So it wasn’t a great surprise that Supreme Court ruled in favor of Monsanto and against Farmer Bowman:
“Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention. The question in this case is whether a farmer (i.e., Farmer Bowman] who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission. We hold that he may not.”
What may have been a greater surprise was that Kagan’s Opinion for the Court was unanimous with no concurring or dissenting opinions. Not even Justice Breyer of Mayo Collaborative Services v. Prometheus Laboratories infamy was apparently willing to throw a Quanta-sized life preserver out for Farmer Bowman.
About midway through Kagan’s Opinion for the Court, it’s pretty clear that the other Justices understood the significance of the Chief Justice’s opening question during oral argument, as well as why the doctrine of patent exhaustion from their earlier Quanta case shouldn’t apply to Farmer Bowman’s unauthorized use of Monsanto’s patented Roundup Ready® soybean technology:
Were the matter otherwise [i.e., if the doctrine of patent exhaustion were to be applied as in Quanta], Monsanto’s patent would provide scant benefit. After inventing the Roundup Ready trait, Monsanto would, to be sure, “receiv[e] [its] reward” for the first seeds it sells. Univis, 316 U. S., at 251. But in short order, other seed companies could reproduce the product and market it to growers, thus depriving Monsanto of its monopoly. And farmers themselves need only buy the seed once, whether from Monsanto, a competitor, or (as here) a grain elevator. The grower could multiply his initial purchase, and then multiply that new creation, ad infinitum—each time profiting from the patented seed without compensating its inventor. Bowman’s late-season [second crop] plantings offer a prime illustration. After buying beans for a single harvest, Bowman saved enough seed each year to reduce or eliminate the need for additional purchases.
Kagan’s Opinion for the Court also noted in the paragraph just before that Farmer Bowman still had permitted uses for those “commodity seeds” he bought that were protected by the doctrine of patent exhaustion: “he could consume the beans himself or feed them to his animals.” But the doctrine of patent exhaustion didn’t “enable Bowman to make additional patented soybeans without Monsanto’s permission (either express or implied). Kagan’s Opinion for the Court also rejected Farmer Bowman’s “seeds-are-special” argument, i.e., that “soybeans naturally ‘self-replicate’ or ‘sprout’ unless stored in a controlled manner.”
In conclusion, Kagan’s Opinion for the Court stated that the Supreme Court’s “holding today is limited—addressing the situation before us, rather than every one involving a self-replicating product.” But as we all know, no decision by the Supreme Court is really “limited” in how it will applied in future cases. Kagan’s Opinion for the Court did observe that self-replication “might occur outside the purchaser’s control,” or that “it might be a necessary a necessary but incidental step in using the item for another purpose” (specifically referring to 17 U. S. C. §117(a)(1) where the owner of a copy of a computer program could lawfully make another copy or adaptation of that computer program if such a new copy or adaptation was created as an essential step in the utilization of that computer program).
One potentially analogous situation to that of Bowman might be “golden master” disks that serve as a “template” for replication of the source code of an operating system (or other computer program) to the hard drive of a new computer. Would someone who obtained such a “golden master” disk, but without authorization to “replicate” the source code from the patent (or possibly copyright) holder, be protected by the doctrine of patent exhaustion, or would that “interloper” share the same fate as Farmer Bowman? What additional circumstances might be relevant in applying (or not applying) the holding in Bowman? But alas, I’ve likely already used up my Quanta of words in this article so I’ll leave that discussion to another day for the James Bond’s (007’s) of the patent world (or for those who like to comment on IPWatchdog posts).
*© 2013 Eric W. Guttag. Posted May 20, 2013 on IPWatchdog.com.
 459 F.3d 1328 (Fed. Cir. 2006).
 302 F.3d 1291 (Fed. Cir. 2002).
 553 U.S. 617 (2008) (holding that the doctrine of patent exhaustion also applied to method patents).
 See Monsanto Co. v. Bowman, 657 F. 3d 1341 (Fed. Cir. 2011).
 The description of the patented technology, Technology Agreement, and activities by Farmer Bowman is taken from the Federal Circuit opinion in Bowman.
 Emphasis added.
 Scruggs, supra, 459 F.3d at 1336. The Federal Circuit panel also quoted from Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094, 1102 (Fed. Cir. 2001) which stated that the right to use “do[es] not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.”
 Emphasis added.
 Cf. Microsoft Corp. v. AT&T Corp., 127 S. Ct. 1746 (2007), reversing AT&T Corp. v. Microsoft Corp., 414 F.3d 1366, 1368 (Fed. Cir. 2005) (holding that copies of operating system software replicated abroad do not infringe under § 271(f))
- - - - - - - - - -
For information on this and related topics please see these archives:
Posted in: Eric Guttag, Federal Circuit, Guest Contributors, IP News, IPWatchdog.com Articles, Patents, Technology & Innovation, US Supreme Court
Tags & Categories
Posted in: Eric Guttag, Federal Circuit, Guest Contributors, IP News, IPWatchdog.com Articles, Patents, Technology & Innovation, US Supreme Court